New cost of retirement as millions will pay 34% more for 'moderate' lifestyle
Millions of older Brits will need an extra £8,000 each year to have a “moderate” retirement income due to rising costs, according to a pensions industry body.
The Pensions and Lifetime Savings Association (PLSA) has released its latest Retirement Living Standards index, which shows how much money you need in later life to cover basic expenses, as well as luxuries. The retirement income needed for a “minimum” living standard has increased from £12,800 to £14,400 (12.5%) for a single person and from £19,900 to £22,400 (12.6%) for a couple.
For couples, this includes spending £95 a week on food, one week holiday in the UK a year, eating out about once a month and some affordable leisure activities about twice a week. But there wouldn't be enough of a budget to run a car. The full new state pension is set to rise to £11,500 a year from this April - highlighting how many will need an extra income, in the form of workplace or private pensions, to achieve a basic retirement lifestyle.
The cost of a “moderate” living standard in retirement has increased from £23,300 to £31,300 (34.3%) for a single person - an increase of £8,000 - and from £34,000 to £43,100 (26.8%) for a couple. This would allow a couple to spend around £100 a week on groceries, £60 a week on eating out, and the ability to run a small second-hand car. They would also be able to have a week holidaying in Europe and a long weekend break in the UK.
How much money you need in retirement, according to PLSA researchFor a "comfortable" retirement, the cost has risen from £37,300 to £43,100 (15.5%) for one person and from £54,500 to £59,000 (8.3%) for a two-person household. Retirees with a "comfortable" lifestyle can have more luxuries like regular beauty treatments, theatre trips and two weeks holiday in Europe a year. A couple could spend around £130 a week on food and £80 a week on meals out.
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The PLSA said higher food, energy and motoring costs were the main contributors behind the increased living expectations. However, it also noted changes in the expectations of what should be included for "moderate" and "comfortable" retirements. For example, discussions groups said someone with a "moderate" retirement income would want a budget of £1,000 to help their family members with additional costs.
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Nigel Peaple, Director Policy & Advocacy, PLSA, said: “The cost of living has put enormous pressure on household finances over the last year and, as the research shows, this is no different for retirees. It’s important for workers saving for retirement to remember the standards are not prescriptive targets, they are a tool to help you engage with the type of spending you think you will do in retirement and to help you plan for it.
“It is also worth highlighting that a couple who each has a full entitlement to the state pension will achieve the Minimum level, and if each is paid average earnings throughout their working life, they have a good chance of enjoying many aspects of the moderate living standard. Working and saving is likely to vary over a lifetime, for example taking time off to have children, so it is important to adapt workplace pension contributions to make up for periods not saving.“
Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, said: “Expectations about living standards in retirement continue to change in subtle ways. The research sets out public consensus about these different living standards with the aim of helping people think in more concrete ways about what they want their own retirement to look like. Their personal retirement goals will be shaped by their own circumstances, needs and preferences.
“In this year’s findings we see the strong effects of rising prices in what’s needed to meet the cost of food and energy. Following the Covid pandemic, this latest research highlights a pronounced need and enthusiasm among the public for shared experiences beyond the confines of their homes, including activities like eating out and holidays.”
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